The lowest mortgage rates and the most favorable terms are reserved for homes that are owner-occupied. As the phrase implies, the owner of the home or property lives in the place as their main residence. When analyzing risks for lending money, most organizations feel that the owner of the place is more likely to work hard and make the payments compared to a tenant or even in the case of a vacation home. However, this is an obstacle for people that wish to purchase a home for their aging parents or physically challenged child. For such situations, Fannie Mae has the Family Opportunity Mortgage.
Family Opportunity Mortgage Basics
Many Americans are faced with trying to keep their parents or adult children in a safe living environment. Some turn to renting a property that is nearby and cheap, but most people would prefer to own rather than rent. The problem, as mentioned above, comes in the structure of the loan.
When people take out a mortgage to buy a 2nd home, the down payment requirement is quite large. Most lenders will ask for at least 10% upfront, and possibly 20%. Furthermore, the interest rate for a 2nd home will be noticeably higher, especially on a long fixed-term loan.
The Family Opportunity Mortgage program is a conventional program offered by Fannie Mae that allows the buyer to pay only a 5% down payment. For a home priced at $200,000, this can save the buyer $10,000 at the time of purchase in upfront costs.
Qualifying for the Family Opportunity Mortgage
Qualifying for the loan is very similar to qualifying for a conventional loan through Fannie Mae. The borrower will need to have a strong credit report and a reasonable debt to income ratios for their existing debt and the proposed house payment. However, the main borrower does not have to live at the home as their main residence.
The borrower will need to provide documents for their income as well as assets just like with any other mortgage. Paystubs, annual W-2 statements, tax returns, investment & retirement account statements will all need to be provided to the lender. If the elder parents are signing on the loan, they too will need to provide proof of income. For people living on social security, a Social Security letter showing their monthly income will need to be obtained.
If a person or married couple wishes to buy a home for their aging parent, the borrower will be considered the occupant for the sake of the loan. In fact, if the aging parents do not have enough income to qualify for the loan, they are not required to sign on the mortgage at all.
No Distance Restriction
Fannie Mae has a rule in place stating that a borrower who wishes to buy a 2nd home must have at least 100 miles between their main residence home and the 2nd home. However, this rule is WAIVED in the case of the Family Opportunity mortgage. This allows people to buy a property for their elderly parents that is relatively close by, making it more convenient to visit and care for their relatives.
Fannie Mae does have some restrictions about the type of homes that can be purchased with the Family Opportunity mortgage.
- The property may not be a timeshare or any type of investment home
- Single unit dwellings are the only homes allowed
- The intended borrower must be the main person in control of the home
- The home needs to suitable for living year-round
- The owner of the property may not agree to allow a management firm to take over the control or occupancy of the home
In essence, Fannie Mae is stating that the person(s) buying the home needs to own the property and that this is not an attempt to fool Fannie May into an investment or vacation property deal.
Qualifications for Elderly Parents
These are the basic requirements for adults wishing to purchase a home for their elderly parents.
- The elderly parents must either be in a situation where their income is not sufficient to be approved for a mortgage or they do not have the ability to work.
- The elderly parents must live in the home as their main residence.
- There is no requirement of distance between the home of the elderly parent(s) and the home of the adult child.
- The elderly parents are allowed to be a co-borrower on the mortgage, but it is not necessary. The adult child will be the primary focus of the mortgage application.
- The adult child may own a primary residence in addition to applying for the home of their elderly parent.
Could be Cheaper Than Assisted Living
Some families are faced with the possibility of paying for assisted living out of pocket. This can be truly expensive and even inconvenient for many families. With the Family Opportunity mortgage, it might be possible to purchase a home and still afford part-time health care for elderly parents for less than the price of a nursing home. Obviously, each situation is different, and people need to weigh the pros and cons of owning a second home versus using an assisted living facility to determine what is best for them.
Qualifications for Disabled Children
The Family Opportunity mortgage is also ideal for parents that wish to provide a home for their disabled, adult children. Many people that face life with disabilities hold jobs and contribute to society in meaningful ways. However, their level of income is typically low and does not afford them the chance to buy a home.
Just like the situation mentioned above for elderly parents, the same rules apply for people that wish to buy a home for their grown, disabled child. The parents will be considered the primary borrower and owner of the property even though their child will be the main resident. This allows the disabled child to exert a form of independence and gives the parents peace of mind knowing that their child is living in a safe place nearby.
The main requirement for this loan is that parents must present documented evidence of their child’s disability.
In addition, this type of loan is intended only for the child of the borrowers. This loan cannot be used on any type of investment or vacation home. The loan will also only be used as either a purchase transaction or a term/rate refinance. A cash-out refinance is not allowed.
Summing Up The Family Opportunity Mortgage
The Family Opportunity mortgage offers a way for both elderly people and those individuals fighting against a handicap to have a sense of independence while still being close to their loved ones for support.